Inclusion Criteria

DISEASE CHARACTERISTICS:

- Diagnosis of myelodysplastic syndromes (MDS) meeting one of the following criteria:

- French-American-British histological classification criteria

- Refractory anemia with excess blasts (RAEB), defined as 5-19% myeloblasts
in the bone marrow

- Patients with 20% blasts are considered to have acute myeloid leukemia
(per WHO classification system) and are therefore excluded in this
study

- Chronic myelomonocytic leukemia (CMML), defined as 10-19% myeloblasts in
the bone marrow and/or 5-19% blasts in the blood

- WHO histological classification criteria

- RAEB-1, defined as 5-9% myeloblasts in the bone marrow

- RAEB-2, defined as 10-19% myeloblasts in the bone marrow and/or 5-19%
blasts in the blood

- CMML-2, defined as 10-19% myeloblasts in the bone marrow and/or 5-19%
blasts in the blood

- International Prognostic Scoring System (IPSS) score of intermediate 2 (1.5-2.0
points based on karyotype, cytopenias, and bone marrow blast percentage) or high
(≥ 2.5 points), in the setting of ≥ 5% myeloblasts

- Considered ineligible for bone marrow transplantation as first-line therapy

PATIENT CHARACTERISTICS:

- Life expectancy ≥ 3 months

- ECOG performance status 0-2

- Not pregnant or nursing

- Negative pregnancy test

- Fertile patients must use effective double-method contraception for 4 weeks before,
during, and for 4 weeks after completion of study treatment

- No serious medical condition, laboratory abnormality, or psychiatric illness that, in
the opinion of the treating physician, would preclude study participation or preclude
giving informed consent

- No preexisting neurotoxicity or neuropathy ≥ grade 2

- No rash or prior hypersensitivity or allergic reaction ≥ grade 3 to thalidomide

- Creatinine ≤ 2.0 mg/dL

- AST and ALT ≤ 2.0 times upper limit of normal

- Bilirubin ≤ 2 mg/dL

- Platelet count ≥ 50,000/mm^3

- Absolute neutrophil count ≥ 500/mm^3

- No other malignancy within the past 3 years except curatively treated carcinoma in
situ of the cervix or nonmelanoma skin cancer

- No history of thromboembolic event or other condition requiring use of
anticoagulation with warfarin or low molecular-weight heparin

- No known or suspected hypersensitivity to azacitidine or mannitol

PRIOR CONCURRENT THERAPY:

- More than 28 days since prior and no other concurrent investigational agents for MDS

- More than 28 days since prior approved therapy for MDS

- More than 14 days since prior growth factors

- More than 28 days since prior and no concurrent supraphysiologic doses (equivalent to
> 10 mg/day of prednisone) of corticosteroids

- More than 12 months since prior radiotherapy, chemotherapy, or cytotoxic therapy for
treatment of conditions other than MDS

- No prior lenalidomide or azacitidine

- No prior stem cell or bone marrow transplantation

- No concurrent androgens, epoetin alfa, or chemotherapy for MDS